At least five interesting things to start your week (#2)

Useless student loans, the U.S. factory-building boom, middle-aged Millennials, opportunity for the poor, and limits to AI

Photo by Intel Photos, CC BY-SA 2.0.

This is the second of my weekly roundups! I’ve decided to start numbering them, like Packy McCormick does with his “Weekly Dose of Optimism” posts, so they don’t all have the same title. I’m also going to start putting links that I bump up from the comments in the next week’s post, so that people who read Noahpinion via email (i.e. most of you) will see them. For now, I’m going to keep 2 of the 5 items free, and paywall the others.

If you have any thoughts on these ideas, or other suggestions for how I could improve these roundups, please let me know!

Anyway, on to this week’s Five Interesting Things. As usual, if you have any more you’d like me to check out, please leave them in the comments.

1. New research suggests that government-provided student loans aren’t helping students

Student lending used to be partly public and partly private, but since the 2008 financial crisis it has been almost entirely taken over by the government. This is why student debt has emerged as such a policy flashpoint in recent years, with calls for student debt forgiveness, pauses on loan repayments, and changes in repayment going forward. But one additional issue is how much the U.S. government should lend to students in the first place.

The main argument in favor of government lending to students is about borrowing constraints. If disadvantaged students A) can’t pay for school without a loan, and B) can’t get private banks to lend them money, then government loans will mean a lot more disadvantaged students who get to go to college and/or graduate school. Which presumably will mean less inequality and more opportunity, which are things we all should want.

But a new paper by Sandra Black, Lesley Turner, and Jeffrey Denning suggests that it doesn’t tend to work out this way in practice — at least, not as far as graduate school is concerned. Using data from Texas, the authors study a policy change in 2006, where the federal government effectively uncapped the amount that grad students were able to borrow from it. This was called the Grad PLUS loan program. They found that students did borrow more money after the change. But this didn’t lead to increased enrollment in grad programs, either for underrepresented minorities or overall:

Source: Black et al. (2023)

Source: Black et al. (2023)

Nor did it increase degree completion rates, even ten years later, even for students who were financially constrained and who thus should have been helped by the loans:

Source: Black et al. (2023)

But the increased borrowing did have one big effect (other than making students more indebted). It increased tuition. In fact, it increased tuition by pretty much exactly the same amount that borrowing increased:

Source: Black et al. (2023)

This should be a huge wake-up call for people who think the U.S. government should lend more to students. It supports the theory that all government loans do is to drive students deeper into debt and push up the price of education, without helping more disadvantaged Americans get degrees. If this research is correct, these loans are basically just draining money from disadvantaged students’ futures, and putting it directly into the pockets of educational institutions. That’s not something our government ought to be doing.

2. America is experiencing a factory-building boom

How can we know if industrial policy is working? Well, one way would be if we actually start making more of the stuff that industrial policy tries to produce — more solar panels, semiconductors, electric cars, and so on. But it takes time to ramp up production, so in the meantime, we can look at how many factories are being built to make these things. And here, the U.S. seems to be getting pretty immediate and impressive results! Inflation-adjusted construction spending in the manufacturing industry has absolutely skyrocketed since June 2022, from $90 billion to $189 billion:

That’s an incredible amount. Factory construction spending more than doubled in one year, after being essentially constant for decades. And it perfectly lines up with the passage of the CHIPS Act in July 2022 and the Inflation Reduction Act in August 2022. In fact, big investments by companies like Intel and Ford — making chips and EVs — figure prominently in these numbers.

And even more incredibly, this is happening at a time when construction spending in pretty much every other area of the economy is falling in inflation-adjusted terms!

Source: Skanda Amarnath

And the spending is spread very evenly around the country, with big increases in every region except the Northeast.

Anyway, this is pretty strong preliminary evidence that industrial policy works. American companies are perfectly willing to spend big sums on factories if they get a little push. The danger, though, is that this spending will ultimately translate into only a modest amount of actual new manufacturing capacity — the money could get eaten up by delays related to NEPA and other legal holdups, and frittered away on government-mandated side goals. Time will tell. But spending money on factories is a very important and necessary first step toward the dream of making America a manufacturing superpower once again.

3. Millennials are getting a lot more comfortable and a bit more conservative